chology has been badly hurt and will take a long time to mend." However, I was referring primarily to loss of investor confidence due to the bankruptcy bill and the New York moratorium legislation, not necessarily disclosure.

It would seem to me that what we are proposing here would hasten that mending process. Would you agree with that? Mr. HARRIES. Yes, I expect it would.

Senator WILLIAMS. The object here is to get all the necessary information for intelligence on the borrowing, the issue, and in a form that is understandable, and that's not easy, is it for the layman, the investor? You mentioned New Jersey's February offering of $50 million of general obligation bonds. Now this is quite a document requiring some sophistication to really make an evaluation of the State's situation with respect to this particular issue. Is this the one that you were referring to?

Mr. HARRIES. Yes, sir. The date on the bottom is January 20, 1976. in the lower left-hand corner.

Senator WILLIAMS. This was for the investor. This wasn't for the underwriter. The underwriter has already been chosen.

Mr. HARRIES. NO. Let me give you the chronology. The issue came to sale on January 7. There were two bids submitted, one by the Smith Barney syndicate and one by Chase Bank. In the course of attempting to obtain bids, two major banks in New York dropped from managing underwriting accounts so instead of four or possibly five bids being submitted competitively, only two were submitted; one by Smith Barney and one by Chase.

Chase requested a great deal more additional information than was contained in the four page bid form. They also requested certifications as to completeness of the material from the State treasurer, the State attorney general, and the Governor. Since they didn't win the bonds, those further requirements didn't take place. Smith Barney, after being awarded the bonds but prior to delivery, insisted that the State supply it, Smith Barney, with a document which would more fully meet disclosure requirements.

I asked the State comptroller this question Monday and I forgetI believe he told me there were 7,000 copies of this printed. It cost them $50,000 because of counsel fees involved to get this material together, and this then was mailed to those people who had purchased the bonds but prior to receiving the actual definitive bonds. It was submitted to the investor after he had committed to take the bond but prior to actual transfer of the money.

Senator WILLIAMS. The chronology of disclosure here to the underwriter rather escapes me.

Mr. HARRIES. It's backward.

Senator WILLIAMS. Yes.

Mr. HARRIES. May I try to clarify this? This document I am holding is an official statement for the New Jersey Housing Financing Agency. This is a revenue bond. You will notice the red on it. This is similar to what we would call a red herring in corporate funds. Senator WILLIAMS. What is the date on this?

Mr. HARRIES. There is no date. It's August blank, 1975. This type of document on a revenue bond is frequently issued well in advance

of the sale so that prospective investors receive this just as a corporate stock or bond offering, may look it over, ask questions, make their decision, and at the time of sale they are given a final document, hopefully with very modest change from the so-called red herring or preliminary prospectus. That is the normal chronology

of sale.

I think it's a fair statement to say that the next time New Jersey sells, Senator, and we are picking on New Jersey solely because it's current and it's a big State and other States will emulate it-this type of 32-page document will probably be issued prior to the sale date.

Senator WILLIAMS. All right. Now turning to the bill that Senator Tower and I introduced, S. 2969, as we go through the provisions under municipal securities disclosure, are these the significant items that you look to in evaluating an issue-not the issuer but an issue? Mr. HARRIES. For the general obligation bond, they are the basic parameters that we look at, yes.

Mr. PHILLIPS. Yes. These cover the items that we look at, although as I said, I think any one analyst might come up with some additional points. For example, I'm not sure I see here the concept of overlapping debt which requires that the government issuing also take account of other governments occupying the same area which also have taxing power and which have debt outstanding. There are certain items of this kind that any one analyst might bring up.

Senator WILLIAMS. Let me understand who's overlapping here. The same governmental jurisdiction?

Mr. PHILLIPS. Well, for example, sir, a city where there was also a county which functioned perhaps a school district, perhaps a flood control district, et cetera-all of which have both taxing power and debt outstanding. The important thing is to measure the burden, the total burden of the debt on the taxpayer who's sitting in Los Angeles, let's say.

Mr. HARRIES. Senator, I have a house in Brick Township. I pay taxes to Ocean County on the same house, overlapping.

Senator WILLIAMS. Separately stated?

Mr. HARRIES. Yes. One is a sewer tax to the county.

Senator WILLIAMS. That's unique in our State.

Mr. HARRIES. It's a sewer tax to the county for the Ocean County Sewer Authority.

Senator WILLIAMS. But that is unique in New Jersey?

Mr. HARRIES. I do not think that's unique.

Mr. PHILLIPS. I'm also in New Jersey and I have a municipal school district and perhaps something else.

Senator WILLIAMS. All separately stated?
Mr. PHILLIPS. Yes, sir.

Senator WILLIAMS. Different tax bills?

Mr. HARRIES. Yes, sir.

Senator WILLIAMS. This is common in many other States. You get the water district, the whole range of services are separately stated. Now beginning at the bottom of page 3, item H, a "description of the principal governmental and other services provided or performed by the issuer, the extent to which similar or different serv

ices are performed by other governmental entities which serve the same geographic area and any major changes in such services in the last 10 years." Whether that approaches it, I am not sure.

Mr. PHILLIPS. That is the area of it, sir, but I'm referring to the debt that each of these different units would have outstanding as well as the proportion of that debt which would be attributed to the primary unit, the issuer.

Senator WILLIAMS. I do not think we meet the overlap that you have described precisely here, but the other items are the essentials of the intelligent evaluation? Am I right?

Mr. HARRIES. Yes, sir.

Mr. PHILLIPS. Yes.

Senator WILLIAMS Well, coming from you with such depth of experience in this area is, I would suggest for my purposes, confidence and assurance that we are moving in the right direction.

Mr. HARRIES. I would agree with that completely.

Senator WILLIAMS. Very good. We'll stop there on that question. How about you, Mr. Phillips?

Mr. PHILLIPS. Yes, sir. You're moving in the right direction.

Senator WILLIAMS. I certainly think that the full impact of the corporate side registration, preregistration with the Securities and Exchange Commission referred in the other bill, is an unnecessarily heavy burden, and I would think because of the practical questions, not the most effective approach.

Mr. HARRIES. I agree completely.

Mr. PHILLIPS. Yes.

Senator WILLIAMS. What is your feeling on the Tower amendment, Mr. Harries?

Mr. HARRIES. I testified before the Economic Committee that I felt the Tower amendment possibly put in proper perspective the position of the Rulemaking Board relative to the problems that the municipal finance officers felt and that if it continued to provide protection from what I thought would have been the Eagleton bill I was in favor of leaving the Tower amendment just the way it is. On the other hand, because of your bill and now my understanding, which was incorrect before, indeed the amendment did not prevent the SEC from oversight of municipals, I'm inclined to rethink the question.

In light of what your bill has offered, which I take is a much more pallatable solution, it may be that a way out of this-and this now gets us into more of this problem-is to get rid of the Tower amendment, bring in the Williams bill with greater Federal sanctions to make the States do it themselves. I'm sorry if I confuse you, but I'm trying to look at the whole problem and I'm not sure we're going to get there just now at this point.

Senator WILLIAMS. I appreciate that. Just one final thing.

Now in the essential services that both of you perform for investors, the information that you require is not mandated to be made public in disclosure to you. You have to dig, do you not?

Mr. HARRIES. Frequently, yes, sir. We do have to dig. I speak for Standard and Poor's. We do have to dig, particularly in the smaller issuers, the ones that come in for a million or less. They are the very

small towns or counties or very small school district where the town clerk is a part-time job. You have to phone them back for further information, more details, more facts coming to the market as a relatively infrequent thing. Yes, we do have to dig. There are very few occasions when we have not rated for lack of disclosure; however, there have been some.

Mr. PHILLIPS. We have to search out every point to satisfy ourselves that we know what we have to know to reach a conclusion and there's a lot of work involved in getting this information together. We have considered this, though, to be our job, to work at it until we have it.

Senator WILLIAMS. I wonder, gentlemen, as we continue our deliberations here on these bills, if we have other questions, if we could put them to you in writing and get the replies for our record. Mr. HARRIES. Certainly.

Mr. PHILLIPS. I would welcome it, sir.

Senator WILLIAMS. Thank you.

Our next witness is Richard Kezer, president of the Dealer Bank Association and speaking for the Dealer Bank Association. I recognize you're accompanied by Henry Rathbun, and we are pleased that he is here.

STATEMENT OF RICHARD KEZER, PRESIDENT OF THE DEALER BANK ASSOCIATION, ACCOMPANIED BY HENRY RATHBUN

Mr. KEZER. Mr. Chairman, I am Richard Kezer, president of the Dealer Bank Association and senior vice president of First National City Bank, New York. I am pleased to appear before you today on behalf of the Dealer Bank Association, a group of approximately 140 commercial banks that actively underwrite and make markets in almost all forms of public securities. As you have noted, with me is Mr. Henry Rathbun of the firm of Wilmer, Cutler and Pickering, which acts as counsel to our association.

The Dealer Bank Association, which I will refer to as the DBA, strongly supports disclosure of material information by issuers of municipal securities. We believe that such disclosure will help bring investor confidence back to the municipal securities market. We also strongly support clarification and delineation of the municipal securities underwriter's obligations. We believe that such clarification will permit issuers to sell their securities more quickly and at a lower cost than is often the case today.

The DBA also believes that appropriate Federal legislation is likely to provide the quickest and surest means of reaching these goals. Accordingly, we applaud this subcommittee's decision to hold hearings on municipal securities disclosure, and we look forward to working with this subcommittee, as we have in the past, to develop sound and sensible legislation.

My statement today will focus on S. 2969, The Municipal Securities Full Disclosure Act of 1976, introduced last week by Senator Williams and Senator Tower. After briefly reviewing the nature of the market with which we are dealing, I will describe the DBA's views on several of the major provisions of S. 2969, and then discuss

more extensively what the role of the municipal securities underwriter ought to be under new Federal legislation. I ask that my full statement be printed in the record of these hearings.

Senator WILLIAMS. It will be.

[Complete statement follows:]

STATEMENT OF RICHARD KEZER, PRESIDENT OF THE DEALER BANK ASSOCIATION

Mr. Chairman and distinguished members of the Committee: I am Richard Kezer, President of the Dealer Bank Association and Senior Vice President of First National City Bank, New York. I am pleased to appear before you today on behalf of the Dealer Bank Association, a group of approximately 140 commercial banks that actively underwrite and make markets in almost all forms of public securities.

The Dealer Bank Association, which I will refer to as the DBA, strongly support disclosure of material information by issuers of municipal securities. We believe that such disclosure will help bring investor confidence back to the municipal securities market. We also strongly support clarification and delineation of the municipal securities underwriter's obligations. We believe that such clarification will permit issuers to sell their securities more quickly and at a lower cost than is often the case today.

The DBA also believes that appropriate federal legislation is likely to provide the quickest and surest means of reaching these goals. Accordingly, we applaud this Subcommittee's decision to hold hearings on municipal securities disclosure, and we look forward to working with this Subcommittee, as we have in the past, to develop sound and sensible legislation.

My statement today will focus on S.2969, "The Municipal Securities Full Disclosure Act of 1976," introduced last week by Senator Williams and Senator Tower. After briefly reviewing the nature of the market with which we are dealing, I will describe the DBA's views on several of the major provisions of S. 2969, and then discuss more extensively what the role of the municipal securities underwriter ought to be under new federal legislation.

The municipal securities market is an extremely large one. According to statistics prepared by The Bond Buyer, a total of 7,701 issues were brought to market in 1974, and a total of $51.9 billion of municipal securities were sold that year. About $22.8 billion of the municipal securities sold in 1974 were long-term bonds, and about $29.1 billion were short-term (12 months or less) securities. There are perhaps 750 participants in the market, including bank dealers, non-bank dealers and brokers. And, of course, there are many thousands of issuers of municipal securities-states, state agencies, cities, counties, school districts and many others.

Historically, municipal securities have been extremely safe investments. In the last forty years particularly, there have been very few municipal defaults. Investors have been able to invest billions of dollars in municipal securities with a high degree of confidence that they will receive the interest and principal they expect. The recent problems of New York City aside, municipal securities have been considered second only to federal government securities in safety. Moreover, issuers and underwriters of municipal scurities have only rarely been charged with misleading investors about the nature of the issuer and its financial resources.

The municipal market is characterized by competitive bidding in which syndicates of underwriters bid against one another to buy an issuer's securities for resale. Competitive bidding makes it impractical for a prospective underwriter to obtain access to the issuer's files and personnel and to commit the staff needed to conduct an independent investigation into the accuracy and completeness of all the information provided by an issuer. An underwriter, when the market is operating properly, would typically be a part of syndicates bidding on a large number of issues in any given time period, and be a part of the successful syndicate only about a quarter of the time that he bids. For example, in 1975 my bank, First National City, was a member of syndicates that bid on 434 issues of long-term bonds; these syndicates were successful 110 times. By way of comparison, we were the underwriters in just 22 negotiated transactions in 1975.